Fools know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you've now got two $10 bills. You're eating 12 slices of pizza that are half the size of six large slices.

So if stock splits mean nothing, why do companies do them? None of the reasons has anything to do with whether the stock is a good investment. The usual suspects:

  • To make the stock look cheap.
  • To increase liquidity.
  • To meet stock exchange listing requirements.
  • To express a bullish management attitude.

No matter what the reason, the market tends to view stock splits as positive, and a company's shares can get a short-term boost from the event. But if the business isn't a good, long-term company, it makes no difference if its shares split or whether you buy them before or after they do.

A split decision
That's why we pair stock-split announcements with judgments from the 74,000 investors at Motley Fool CAPS. Every day, professional and novice investors rate the prospects of thousands of stocks, resulting in a rating between one and five stars (five being the top). If the best stock pickers think a company's long-term performance is outstanding, and the company has announced the bullish signal to split its shares, we take notice. We dive in to find out what the CAPS community has to say about some of these companies.

Here are four companies that have recently announced stock splits.

Company

Split

Announcement
Date

Date Payable

CAPS Rating
(out of 5)

Deere & Co (NYSE:DE)

2:1

11/14/2007

12/3/2007

****

Rofin-Sinar (NASDAQ:RSTI)

2:1

11/8/2007

12/5/2007

*****

XTO Energy (NYSE:XTO)

5:4

11/14/2007

12/13/2007

*****

BorgWarner (NYSE:BWA)

2:1

11/14/2007

12/17/2007

*****

Source: Company SEC filings. Ratings courtesy of Motley Fool CAPS.

This is a well-regarded group of companies, all rating four or five stars, which signals that CAPS investors are just as confident about the companies' prospects as management apparently is.

A burst of energy
Oil and gas exploration firm XTO Energy announced its eighth stock split in 10 years. Management also announced that it is maintaining its $0.48 per share annual dividend which effectively works out to a 25% increase in the dividend. That's a significant endorsement from a management team that's bullish about the future, one apparently still flush with cash even after taking a chunk of Dominion Resources (NYSE:D) for $2.5 billion earlier this year. With about half of its expected gas sales for this quarter locked in well above the price for futures, XTO looks like it will achieve ongoing excellence.

Top-rated CAPS All-Star Ayax2006 likes the way this natural gas company is run and foresees a chance to acquire shares if the stock price wobbles.

Attractive energy play. This is a well run firm that has been consistently adding to its reserves. Natural gas accounts for [75%+] of its production. Gas prices are too low right now ($6 per thousand cubic feet [10/31/07 price was $6.25 per thousand cubic feet -- eds.]) and will bounce back towards the end of the year if not sooner. Risk: recession in the US hitting oil and gas prices. Upside: ... higher long term demand of energy and especially natural gas due to cleaner burning qualities than oil.

Similarly, another CAPS All-Star, jester112358, thinks this may be the cheapest, best-managed company in the industry, saying, "They are building up ever more valuable reserves through their exploration efforts. This may be the best run integrated oil company."

Split the difference
How about you? Will investors continue to explore for profits here? Get in the mix with Motley Fool CAPS and share your ideas about stock splits with tens of thousands of your fellow investors.

Rofin-Sinar is a Motley Fool Hidden Gems recommendation, and Borg Warner is a selection of Motley Fool Stock Advisor. You can check out either service free for 30 days with a trial subscription.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a banana-flavored disclosure policy.